Treasury Volatility In The Spotlight

By Craig Bewick
OCT 05 2020

US Equity indexes moved broadly higher today and, with everything that is in play, from President Trump’s health, to the election, to further stimulus bill negotiations, etc, we wouldn’t dare venture a guess as to why. However, perhaps it was all of this that caused implied volatility in the options market to increase even as prices rallied.

In other CME Group markets, WTI Crude Oil future prices were up by more than 6% after a couple of days of price declines while volatility fell in the WTI options markets.  US Treasury prices declined, particularly on the long-end (the Ultra-Bond was down by over 3.5 points) as yields rose and the curve steepened a bit.  With the increase in implied Treasury yields, we saw a spike in implied volatility in the US Bond options at CME Group as well.  Below is a QuikStrike graph of 3 months of implied volatility and price in the US Bond futures and options. 

Gold futures prices were about .5% higher today while Silver rallied by 2%.  Implied volatility in the options markets for both metals was near steady.  From time to time, In FOCUS readers have written in with questions about volatility and skew.  We have published a paper on both topics using Silver options as a real-life example.  Please feel free to check it out at https://www.cmegroup.com/education/articles-and-reports/implied-volatility.html. 

ABOUT THE AUTHOR

Craig Bewick has spent 25 years in futures and options markets, starting at CBOT and CME working in risk management, regulatory, technology, product management and client development. 

After 8.5 years with WH Trading LLC, Craig returned to CME Group as the Director, Client Development and Sales, working to educate and promote futures trading. Craig currently writes for InFocus Options Corner.

Connect with Craig at activetrader@cmegroup.com

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